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New nuclear construction projects in the US face many issues

It is one thing to talk about the need for nuclear power in the United States — it is another thing altogether to understand the strategies required to ensure that nuclear maintains its current status quo.

The nuclear industry faces serious challenges which must be overcome if it is to maintain its current share of the market. According to the nuclear industry, to maintain its current share of electrical generation in the United States, 50 new 1,000 MW reactors need to be built by 2030.[i] This goal is highly unlikely to be reached, and the much acclaimed “Nuclear Renaissance” has peaked and is already on the decline.

The biggest problems facing the nuclear industry hasn’t been opposition from anti-nuclear or environmental groups, an unrefined regulatory process, or a lack of financial relief, as much as it has been the inability to produce critical components on-time from manufacturers.

The construction of future reactor sites must be able to prevail over delays and cost overruns which are tormenting current projects. These problems didn’t appear overnight, they were the result of a series of conscious legislative and business actions stretching back over thirty years.

Streamlining the regulatory process – Moving from Part 50 to Part 52

Most of the nuclear power plants operating in the United States today were constructed and licensed during the 1960s and 1970s and were only designed to operate for 40 years. To date, the owners of the 99 operating nuclear reactors in the United States have opted to avoid constructing new nuclear facilities, preferring instead to pursue license renewal and power uprates of existing nuclear reactors.

After Three Mile Island (1979) and Chernobyl (1986), the expansion of the nuclear industry in the United States ground to a halt. Since the 1980s, the Nuclear Regulatory Commission (NRC) has worked on streamlining alternative licensing procedures in order to entice licensees and potential-licensees to construct new nuclear power facilities.[ii]

Before the streamlined process, applicants interested in constructing new nuclear power plants had to go through a two-step licensing process, known as the Part 50 process.[iii] Applicants would first apply for the construction permit, only after construction was completed were licensees allowed to apply for an operation license. Since the costs of construction were so undeniably high, and there was no guarantee that an operating license would be granted, no new nuclear power plants were constructed for three decades.

There was a lack of standardization among nuclear power facilities. Each constructed reactor was unique from the others, even those with the same basic reactor design.

The Part 52 process was introduced by the Nuclear Regulatory Commission in order to combat these issues.[iv] The streamlined process combined the application process and allowed applicants to select from pre-certified reactor designs.

The Part 52 process has proved more predictable in licensing than the Part 50 process. Now, applicants are not only assured that they will have an operating license from the NRC when they receive the construction permit, they also can pick from reactor designs like the Westinghouse AP1000 that have already been certified by the NRC to quicken the licensing process. The Part 52 Process also allows Early Site Permits, which allow the applicant to get a reactor site approved without having determined what reactor design will be constructed.

Amidst all of these changes, the new licensing process also minimizes the public opportunity to intervene before the plant becomes operational. The threshold for intervention is much higher after the Combined License (COL) has been issued. A hearing can only be granted with prima facie evidence that one or more Inspections, Tests, Analyses, Acceptance Criteria (ITAAC) has not been met. If the licensee is able to demonstrate that the ITAAC are met, then there are no grounds for hearings and no possible intervention for the public after the COL has been issued.

The new licensing process meant that the nuclear industry could no longer easily blame regulators and a two-step licensing process for holding up construction schedules and bringing new plants online.

The Part 52 process has not solved all or even most of the issues — instead it has only further revealed the complex nature of problems surrounding the construction of nuclear power plants.

Streamlining the Costs – Energy Policies

The combined application process didn’t lead to the expansion of nuclear projects as anticipated. It would take more than fifteen years for an applicant to use the Part 52 process for licensing a new nuclear power facility.

The financial challenge facing utilities interested in building nuclear power plants is impossible to overcome without special treatment from state regulators, federal loan guarantees, or tax-related stimulus for investment. The companies which look to build a new nuclear facilities are relatively small when compared to the large capital investment required, and simply do not have the power to finance a project of such scale on their own. Further complicating the issue, Wall Street has repeatedly refused to fund nuclear power plant construction projects because of the costs and risks involved, seeing other methods of power generation as more cost effective and prudent.

Department of Energy Nuclear Power 2010 Program

The Nuclear Power 2010 Program was established as a government and industry cost-shared effort in 2002 to support the construction of new nuclear power facilities, expand the generating capacity of nuclear power in the U.S. energy portfolio, and demonstrate the new Part 52 licensing process.[v] The goal was to put new nuclear power plants into operation by 2010.

It was understood that in order to make the goals of the action plan a reality, a concerted effort would have to be put forward by multiple agencies and the nuclear industry. The NRC needed to aid in the applications for Early Site Permits and Design Certification, the DOE needed to support research and development, and the industry had to work with the DOE to demonstrate unproven processes.

Energy Policy Act of 2005

Seeking to aid the construction and development of next-generation nuclear reactors, the United States Government next passed the 2005 Energy Policy Act which met all of the pre-requisites laid out by the nuclear industry. The Act offered licensees different incentives, one for innovative technologies in the form of Production Tax Credits (PTCs), and a collection of federal loan guarantees that could cover up to 80% of the construction costs.[vi] The federal loan guarantees ensured that in the case of a default by the licensee the US Government would reimburse the lender the principle and the interest. The Energy Policy Act also provided that federal insurance would cover the costs stemming from delays from licensing or litigation procedures.

Construction Work In Progress (CWIP)

Federal loan guarantees are not the main reason that both the V.C. Summer and Vogtle construction projects are proceeding. While the Energy Policy Act of 2005 did increase the financial profitability of a project after it is constructed and put into operation, it did not improve the financial challenges being faced by applicants before and during the construction progress.

Instead of the billions of dollars available from federal loan guarantees, according to the nuclear industry the most effective tool available to the project sponsors of the V.C. Summer and Vogtle projects is that Georgia and South Carolina have assured the project sponsors that their investment will be recovered through electricity rates, and have allowed the companies to recover costs during construction (also known as Construction Work In Progress).[vii]

CWIP is a relatively new legislative policy in terms of building utility power generation properties. Historically, the construction of utility generation assets would be financed by lenders and investors and customers would only begin paying after the power plant was producing electricity and consumers were receiving a service.

In 2009 the “Georgia Nuclear Energy Financing Act” was passed which made it legal for utilities in Georgia to charge ratepayers up front for nuclear reactor construction projects. South Carolina passed the “Base Load Review Act” in 2007 that allows utilities to collect costs from rate payers through annual rate increases.

CWIP legislation places the financial risk of constructing proposed plants squarely on the shoulders of the ratepayers, not the company shareholders. Additionally, these laws do not have any cap on the risk that can be transferred to the ratepayers. Utilities are able to continue recovering costs from ratepayers no matter if the plants go online or not. This is important because half of all nuclear power plants ever ordered have been cancelled.[viii]

CWIP not only gives companies incentive to make a commitment to build next-generation reactors, but also eases the strain on the companies’ cash flow by opening up the wallets of the ratepayers with no guarantee that the project will be completed or ever be put into service.

In a nutshell, CWIP laws allow utilities to charge ratepayers for plants whose original predicted construction costs are not accurate, whose total project costs are not publicized, whose completion dates are unpredictable, and whose ability to complete the construction project and ultimately produce commercial power is not guaranteed.

South Carolina Super-CWIP

When South Carolina passed the “Base Load Review Act” in 2007, they created a regulatory mechanism that specifically encourages nuclear construction. The legislation also gave utilities in South Carolina automatic annual rate hikes without full rate proceedings.

South Carolina’s Super-CWIP legislation differs from other CWIP laws by adding assurance of full recovery of costs from ratepayers even if the plant is cancelled and by assuring limited reviews that are less likely to disallow recovery, even in the event of imprudence.[ix]

CWIP Failures

To demonstrate that CWIP and not only federal loan guarantees are attracting new reactor construction projects, one only has to look at the proposed Levy project by Duke Energy in Florida, Duke Energy’s work to enhance CWIP legislation in North Carolina, or the previously proposed Calloway 2 project in Missouri.

Levy Project – Florida

In Florida, Duke Energy dropped its plans to build the $24.7 billion Levy County nuclear power plant citing “regulatory uncertainty” after the state changed its laws and endangered whether the utility would be able to collect additional funds from ratepayers for construction work before the project had been finished.

Calloway Project – Missouri

In 1976, Missouri voters passed a law that prevented utilities from charging customers for construction costs until the plant was brought online and producing power.

Ameren Missouri, the operator of the single unit Calloway nuclear reactor, submitted an application for a Combined Construction and Operating License to the Nuclear Regulatory Commission proposing a next-generation second unit at the Calloway nuclear power plant in 2008. Ameren tried to change the 1976 law by developing a bill called the “Clean and Renewable Energy Construction Act” which would allow charging ratepayers for CWIP, by contributing over $125,000 to political campaigns, and also by paying for a television advertising spot aimed at increasing support for their bill.

The bill was strongly opposed and was blocked in the State Senate. As a result of the inability to get the bill passed, the project was cancelled by Ameren in 2009. Ameren President and CEO Thomas Voss said at the time that the lack of ability to pass the bill and charge CWIP would “not give us the financial and regulatory certainty we need to complete this project.[x]

Duke Energy – North Carolina

Utilities in North Carolina have a more conservative version of CWIP then their neighbors in South Carolina, which does not guarantee that the utility would be able to subject ratepayers to annual rate increases while the project is still under construction.

In 1982, North Carolina pass a ban on CWIP financing, which was reversed after pressure from Duke Energy and Progress Energy when the State passed the Renewable Energy and Energy Efficiency Portfolio Standard in 2007, but it still would not be as easy for utilities to pre-charge ratepayers as it was for utilities in South Carolina because all costs would have to be approved in an official rate review.

[youtube http://www.youtube.com/watch?v=OArQGaNWJ1w]The State of North Carolina continues to be pushed by Duke Energy and Progress Energy to pass a more enhanced form of the CWIP legislation that would essentially guarantee annual rate increases. Duke Energy CEO Jim Rogers has insisted that they will not build any new nuclear power plants in North Carolina until the state updates the cost recovery mechanism to match South Carolina’s “Super-CWIP” legislation.

In 2011, Florida State Senator Mike Fasano wrote to the Governor of North Carolina, Beverly Perdue, and communicated her of the experience that Florida has had with their enhanced CWIP legislation. Fasano warned “We’ve learned the hard way in Florida that allowing utilities to recover the costs of a new power plant before the plant is even placed in service is unfair to consumers and bad public policy.”[xi]

Streamlining the construction process – Complicating the supply chain

It can be argued that by simplifying the licensing process, regulators helped create a more complicated and less regulated vendor supply chain, which is one of the primary issues holding up the construction of nuclear power plants in the United States.

One of the major selling points used by utilities in the United States when pitching the new reactors was a new and improved streamlined modular construction process. The idea was that if licensees elected to use pre-certified designs, the manufacturers (who are hired by reactor designers to produce critical components) could also streamline the production process by breaking the design down into modules and sub-modules which could be fabricated at a central facility and delivered to the plant construction site for final assembly.

In 2012, the first new reactor projects in decades — the V.C. Summer nuclear power plant and the Vogtle nuclear power plant, were both approved. Both planned projects selected the Westinghouse AP1000 reactor design, which was pre-certified by the NRC. Since both projects elected to use the same design, both sites have most of the same components and designs — with exceptions being the concrete basemat and the cooling towers. All four reactors at V.C. Summer and Vogtle are being built by the same Consortium (Westinghouse and Chicago Bridge & Iron).

The central CB&I facility is located in Lake Charles, Louisiana where the modules are fabricated before being shipped to construction sites to be assembled. The supply chain which CB&I and Westinghouse employed connects vendors from around the world. Various tanks are supplied from vendors in Michigan and Wisconsin, cooling tower fans are obtained from Brazil, vendors from Illinois, California, Ohio, Massachusetts, North Carolina, Pennsylvania, and Canada supply assorted valves, reactor coolant pumps and recirculation heaters are supplied from Pennsylvania, containment recirculation screens are sourced from Switzerland, the reactor vessels, steam generators and heat exchangers are all supplied from South Korea, and the turbine generators and containment vessels are delivered from Japan.

Submodule Delivery Delay

After streamlining the licensing process, granting billions in federal loan guarantees, and forcing ratepayers to pay rate hikes for construction work in progress, it is quite evident that it is the industry’s lack of ability to source materials and fabricate reactor modules in a timely and cost effective manner that is sinking the construction of next-generation reactors.

According to South Carolina Electric & Gas (SCE&G), the Consortium (CB&I and Westinghouse) has been hampered by delays in fabrication and delivery of submodules for the V.C. Summer Units under construction and these delays are the primary reason for continued delayed completion estimates.

In a 2013 review of the V.C. Summer status of construction activities, officials from the South Carolina Office of Regulatory Staff note, “The most significant issue is the delay in the delivery of the structural submodules. Despite continuing high-level management and executive focus from Chicago Bridge and Iron, Westinghouse Electric Company and SCE&G, the delivery and quality problems associated with these submodules are still not satisfactorily resolved. Delays in these submodules affect almost all subsequent critical path sequences in the construction schedule.”[xii]

In a January 2014 publication, the DOE acknowledged that the “critical path for completion of both V.C. Summer units continues to be defined by progress in delivery of submodules from the Chicago Bridge and Iron Lake Charles Facility.”[xiii]

The very components of the construction process that were streamlined are now causing the biggest delays, and the components of the regulations and licensing which were streamlined to accommodate the industry’s needs are the very tools used to transfer the risk and costs to the ratepayers and public at large, while also protecting shareholder profits.

The complicating issue is that when deficiencies or problems are encountered they have a tendency to adversely affect operations at both the V.C. Summer and Vogtle construction projects. Even if the problems are limited to one project, the delays caused by those problems can still affect the construction timeline for the other project.

Serious quality control issues at the Lake Charles Chicago Bridget & Iron facility have resulted in significant delays for critical components. In December 2014 an NRC inspection team was dispatched to the Lake Charles facility to once again inspect the QA program. According to the NRC inspection report, there is a “longstanding history of problems associated with CB&I LC’s QA program implementation related to the fabrication of structural support sub-modules for the AP1000 projects at V.C. Summer Units 2 and 3, and Vogtle Units 3 and 4.”

Brief Overview of Issues Associated with Chicago Bridge & Iron

Jan-2011

NRC inspections identify issues with CB&I QA Program

In January 2011, November 2011, and September 2012, NRC inspectors identified issues with the effectiveness of CB&I’s corrective action program and programmatic controls.

Apr-2011

NRC initiates investigation of welding procedures at CB&I

The investigation was initiated on April 20, 2011 to determine (1) if management at CB&I-LC willfully instructed welders to weld safety-related sub-modules using a Welding Procedure Specification (WPS) with incorrect settings, and (2) if welders backdated training certifications to weld procedures.

The NRC investigated CB&I after finding a former employee was terminated, in part, for notifitying supervisor of rebar quality assurance concerns. The NRC found CB&I’s Code of Corporate Conduct to be overly restrictive and “may prevent employees from raising nuclear safety concerns.”

Sep-2012

Work at V.C. Summer Unit 2 put on hold pending resolution of concrete and rebar work issues raised by the NRC

Apr-2013

NRC issues Notice of Violation and Proposed Imposition of Civil Penalties to CB&I

CB&I continued to oppose the violation and, in lieu of continuing the enforcement process and eventually requesting a hearing on the violation, requested alternative dispute resolution.

Apr-2013

NRC sends CB&I chilled work environment letter

Nov-2013

V.C. Summer and Vogtle identify breakdown in CB&I QA program

Dec-2013

CB&I identifies welding procedures are non-compliant with code

Jan-2014

CB&I self-imposes stop-work order

The areas of focus for the stop-work order were: 1) production, 2) corrective action, 3) procedures, and 4) training.

Feb-2014

NRC determines CB&I not fully implementing QA program

The NRC conducted an inspection and determined that CB&I LC was not fully implementing its QA program in the areas of corrective action and control of nonconforming items. Additionally, the NRC identified several missed opportunities that should have led to an earlier initiation of the stop-work order and for an evaluation to determine the impact on previously fabricated sub-modules.

Apr-2014

CB&I lifts self-imposed stop-work order

Sep-2014

V.C. Summer and Vogtle identify breakdown in CB&I QA program

In September 2014, V.C. Summer and Vogtle notified the NRC and CB&I of a significant breakdown in CB&I’s QA program.

Oct-2014

NRC issues confirmatory order to CB&I

As part of the agreement reached through the alternative disputes program, CB&I had to admit that its safety culture to date had not been effective, and that it would take a number of actions to strengthen the safety culture monitoring program, the employee concerns program, employee training, and communications.

Dec-2014

NRC inspects CB&I Lake Charles fabrication facility

Jan-2015

NRC determines CB&I QA program inadequate

After an on-site inspection, the NRC determined that CB&I was not fully implementing the corrective action portion of its Quality Assurance program. The NRC inspection team found that CB&I failed to determine the root cause and take proper corrective action in order to preclude recurrence of problems at the Lake Charles facility.[xiv][xv][xvi][xvii][xviii][xix]

In response, CB&I shifted work from the Lake Charles facility to the module assembly facility onsite, and ultimately to a different firm in South Carolina. The full extent of the schedule delay and the increased costs have not yet been fully determined.

Construction Projects Over-Budget and Delayed Progress

The first units at the V.C. Summer and Vogtle sites were originally scheduled to begin commercial operation in April 2016, with the second units following in April 2017.

In 2008 it was estimated that both Vogtle reactors would cost a combined $14.3 billion and the project was approved assuming a 12% increase in customer rates.[xx] In the last seven years, Southern Co. and its partners have repeatedly failed to meet project construction deadlines. Today, the Vogtle construction project is years behind schedule and total publicized cost estimates exceed $15.5 billion USD.[xxi]

Southern Co. is also in a legal battle with its contractors over $900 million of additional costs related to construction design changes. If the project sponsors lose the legal proceedings and the construction contractors are not forced to pay the additional costs the project’s final costs would rise to $16.5 billion.

The V.C. Summer nuclear power plant expansion in South Carolina is years behind schedule because the manufacturing of key components has failed to meet time deadlines, pushing the overall project completion date to 2020.

Private rating agencies have noticed the rising costs and risks of the V.C. Summer nuclear expansion projects and have reacted by downgrading the project sponsors. In August 2014, Fitch revised SCE&G’s rating outlook from stable to negative due to “the heightened regulatory and financial risk of the nuclear construction program following the announcement of a longer than expected delay in the construction schedule and the uncertain cost impact.”[xxiii]